Getting serious about deficit reduction

We’ve mentioned, but not talked much about, the deficit reduction blueprint issued by Erskine Bowles and Alan Simpson, co-chairs of the National Commission on Fiscal Responsibility and Reform. Although their recommendations apparently will be unable to garner 14 of 18 votes among the commissioners, as is required for them to be adopted as the Commission’s recommendation, they provide a potentially useful starting point for serious deficit reduction.
In my view, the biggest problem with the Bowles-Simpson recommendations is in the area of health care, where their blueprint assumes the implementation of Obamacare. If tax increases and reductions in the defense budget are on the table – as I believe they will have to be – then so too should the enormously expensive new entitlement the Democrats created against the will of the American people. And no serious budget reduction can ignore, or rely on Obamacare to deal with, the high cost of health care.
Fortunately, another bipartisan pair – Alice Rivlin and Rep. Paul Ryan — has just proposed a thoughtful plan to deal with our exploding health care entitlements. Rivlin was the budget director under President Clinton; Ryan will be the next chairman of the House Budget Committee. They make a more convincing bipartisan duo than Erskine and Simpson because Ryan is more serious and more conservative than Simpson, who these days mostly plays a Republican on TV. Yuval Levin, a member of the White House domestic policy staff under President George W. Bush, examines the Rivlin-Ryan proposal and likes what he sees:

Rivlin and Ryan would leave the benefits of today’s retirees and near-retirees alone. But for people who are now 55 and younger, Rivlin and Ryan would transform Medicare from a program that directly pays for care in an open-ended way to one that provides retirees with money to buy private health insurance on their own. The amount provided would be based on “average annual per capita expenditures in 2021.” It would grow much more slowly than Medicare spending grows today. And it would be adjusted by income, geography, and health risks–so that those who need more help can get it. The poorest seniors would also get additional help to pay out-of-pocket costs.
Meanwhile, starting in 2013, Rivlin and Ryan would transform the federal share of the Medicaid program into a block grant to the states–the amount of which would be determined by each state’s poor population, and again would grow much more slowly than Medicaid spending has been growing lately.

This approach, says Levin, would “transform our massive, open-ended health care entitlements into powerful means of cost containment, while allowing individuals more control over their coverage and care, and giving states more say over their budgets.” Thus, “ïn one fell swoop, the Rivlin-Ryan proposals would turn Medicare and Medicaid from a major source of the problem into the beginning of a solution to our debt crisis.” In fact, the Congressional Budget Office estimates that, under this approach, federal health care entitlements would account for only 10 percent of GDP by 2050, rather than the nearly 14 percent projected under today’s policies.
What about Obamacare? Rivlin and Ryan propose to repeal one of its more costly elements — a new long-term care entitlement. More importantly, Levin argues, their plan “implicitly offers an excellent alternative to the entire approach of the Democratic health care law”:

The model Rivlin-Ryan propose for Medicare–a means-tested, pre-defined subsidy for the purchase of private insurance–ought to be the basis for a broader reform that replaces Obamacare and transforms today’s tax exclusion for employer-based coverage into a tax credit for health insurance for all (as, indeed, Rep. Ryan has proposed to do).

It’s encouraging that Rivlin and Ryan have come together on this set of issues in this way; indeed, the Bowles-Simpson recommendations are mildly encouraging, as well. Whether these instances of bipartisanship represent a sign of things to come on Capitol Hill and in the White House, is another matter.